IDC Funding

Funding facilities available from the IDC:

The Industrial Development Corporation, South Africa’s largest development finance institution, has helped to build the industrial capacity that fuels the country’s economic growth, by funding viable businesses.

The Development Funds Department provides funding support to projects that have a high development impact. It achieves this by managing higher risk-taking funds, and disbursing these funds into deserving projects.

The funding schemes support the aims of the New Growth Path (NGP) set out by the Economic Development Department (EDD), which emphasises technological innovation, growth, employment creation and equity.

The funds currently managed under the Development Funds Department are:
• Gro-e-Scheme
• Support Programme for Industrial Innovation
• Risk Capital Facility Programme
• Transformation and Entrepreneurship Scheme
• Agro-Processor Linkage Scheme
• Agro-Processing Competitiveness Fund, and
• Clothing & Textiles Competitiveness Programme
Below are the details of the respective funds. The funding guidelines are revised from time to time.


Gro-e-Scheme

R10 billion is available to high-impact job creation projects over the next five years in priority sectors. The Scheme offers concessionary pricing to clients, with a loan pricing of prime less 3% and Real After Tax Internal Rate of Return (RATIRR) of 5% for equity financing. The funding is available over five years or until the scheme is exhausted.

The first draw must be within a year of approval for funding (if not, pricing reverts to normal IDC pricing). The reduced loan pricing is available for five years, after which normal IDC pricing applies, and finance required in excess of the scheme’s limit can be accessed through normal IDC funding. The scheme’s limit is R1 billion.

Criteria set out for financial assistance include:
• Start-up businesses, including funding for buildings, machinery and working capital
• Existing businesses for expansionary purposes
• Businesses that demonstrate economic merit and have prospects of acceptable profitability to be able to service their obligation
• For the duration of the funding period, businesses whose maximum cost per job does not exceed R500 000 relative to the total funding required by the business
• BBBEE certification is required from an accredited verification agency, where applicable • The Scheme is only available to businesses operating or expanding in South Africa


Support Programme for Industrial Innovation (SPII)

Developing new technologies is an important way of strengthening South Africa’s global competitiveness. Our Support Programme for Industrial Innovation (SPII) is designed to help this sector by providing financial assistance to projects that create innovative products and processes.

The programme focuses specifically on the phase that begins from the conclusion of basic research – the proof of concept stage – to the point at which a pre-production prototype has been built.

There are three schemes within the support programme: • Product Process Development • Matching Scheme • Partnership Scheme These are available to all South African-registered businesses or individuals, depending on the merit of their project proposals. The Development Funds Department manages the programme on behalf of the Department of Trade and Industry.

Funding criteria Applications are evaluated according to:
• Technical innovation of the new project
• Marketability of the project
• Ability to manufacture and market the products and/or processes developed
• Development and production must take place in South Africa
• Availability of project management skills to develop the project, and
• Financial ability to complete the proposed development

Product Process Development This Scheme is used to promote technology development for new products or processes at the lower end of innovation. For this reason, it targets small, very small and micro-enterprises that have fewer than 50 employees, that have a turnover of less than R13 million and that have assets of under R5 million.

Financial assistance is in the form of a non-repayable grant of between 50% and 85% of direct development costs, up to a maximum of R2 million.

Matching Scheme to be considered for help under this Scheme, developments should represent a significant advance in technology.

Assistance is given to small and medium enterprises, with less than 200 employees, a turnover of under R51 million and assets of less than R19 million.

Our financial aid is in the form of a non-repayable grant of between 50% and 75% of direct development costs, up to a maximum of R5 million.

Partnership Scheme the Partnership Scheme applies to the development of large projects that offer a significant advance in technology, and is open to all South African-registered enterprises. Applicants must be able to demonstrate the development impact of their proposed project.

Financial support is provided in the form of a conditional grant of up to 50% of the direct development costs. This is conditionally repayable on successful commercialisation of the project, via a levy on sales.

The minimum conditional grant is R10 million.
For more information on SPII, visit www.spii.co.za


Risk Capital Facility Programme

The primary focus of the Risk Capital Facility Programme (RCF) is to provide risk finance to companies owned by historically disadvantaged people.

In addition, the companies – small and medium enterprises – must show significant job creation potential. The funding is provided by the European Community through the Department of Trade and Industry. There are three channels through which funding is provided: a direct channel operating alongside the IDC’s mainstream business; a niche fund channel, where venture capital funds target a specific sector that has a developmental focus; and a third party channel, where funds co-invest with other financial institutions.

Applicants must be South African and their projects must be located either in South Africa or elsewhere in the rest of Africa. Investments outside Gauteng and the Western Cape will be preferred for projects inside South Africa, while cross-border investment can be located anywhere in Africa.

Funding criteria: All applicants must fulfil our investment criteria:
• Demonstrate financial profitability, technical feasibility and economic viability, and be environmentally sound
• Highlight job creation features and empowerment compliance
• Show a significant involvement of historically disadvantaged persons in management
• Demonstrate compliance with South African environmental legislation
• Have a programme for HIV/Aids prevention and awareness

Guidelines for those applying for direct or third party channel funding:
• The applicant must be an SME
• The minimum historically disadvantaged persons ownership must be 25% plus one share
• Job intensity of an investment, calculated on a cost-per-job basis
• There is a maximum single investment amount of R20 million, and funds will be applied to improving the financial structure of undercapitalised companies

Guidelines for those applying for niche fund channel support:
• Applicants must invest in SMEs with at least 25% plus one share BEE
• The maximum investment is R30 million
• The RCF Programme will always be a minority equity investor • The exit period will be determined on a case-by-case basis
• The fund manager must demonstrate a sound track record, with a minimum historically disadvantaged persons ownership of 25% plus one share


Transformation and Entrepreneurship Scheme

The Transformation and Entrepreneurship Scheme (TES) has been set up to finance marginalised groups in South Africa.
The aim with this Scheme is to stimulate and develop mainly small and medium enterprises, and to make the mainstream economy accessible to marginalised groups – women, new entrant black entrepreneurs, workers and communities.

TES is designed to help entrepreneurs access finance to develop and grow their business. We offer funding for start-up businesses, expansions or expansionary acquisitions. Along with this, we offer business support, partially by way of a grant, helping with business planning, training and mentorship.

Under this Scheme, some R1 billion has been set aside for five funds:
• Women Entrepreneurial Fund
• Equity Contribution Fund
• Development Fund for Workers
• Community Fund; and
• People with Disability Fund

Funding criteria: General criteria for all funds:
• Applicants must be able to demonstrate that their business is economically viable and financially sustainable
• The business must be in one of the IDC’s mandated sectors
• Provision must be made for the employment of people with disabilities, especially where a business has more than 100 people • Funding provided will generally not be less than R1 million Specific guidelines for each of the funds Women Entrepreneurial Fund
• This fund applies to businesses with a minimum shareholding by women of at least 50%; shareholding between 25% and 50% will be considered on revised terms
• It can apply to a start-up business or for expansions
• It is available to new entrants – that is, those shareholders with a direct or indirect total net asset base of less than R15 million • The business must include women in its operations and management
• Finance is provided to businesses with a total asset base of up to R80 million and the maximum amount we will finance under this fund is R30 million per transaction Equity Contribution Fund
• This funding is available for new black entrants where shareholders hold a direct or indirect total net asset base of less than R1.5 million
• Only for black individuals or 100% black-owned companies – in the case where the company is not wholly black-owned, the black shareholding must be 25% plus one
• This fund applies to start-up businesses or existing companies that wish to expand; black shareholders who are financed under the scheme must be involved in both the operations and management of the company
• A maximum limit of R10 million has been set for each application
• Finance is provided to businesses with a total asset base of up to R80 million Development Fund for Workers
• This fund provides finance to Broad-Based Black Economic Empowerment transactions for at least 85%-owned black worker groupings to acquire shareholding in IDC-funded projects
• It applies to low-skilled workers who may have little prospect of accessing equity
• Businesses that can apply may be start-ups, or companies looking to expand
• The maximum amount that can be financed under this fund is R15 million per transaction
• There are no restrictions on the business size
• The workers must acquire a meaningful stake in the business Community Fund
• This fund provides finance to marginalised communities that want to acquire shares in a company funded by the IDC
• These businesses can be start-up, or companies looking to expand
• The maximum amount that can be financed under this fund is R10 million
• There are no restrictions on the business size, but it is a requirement that the community acquires a meaningful stake in the business People with Disabilities Fund
• Minimum shareholding by people/person with disabilities must be at least 50% plus one share in the target and/or investee company; shareholding between 25% and 50% will be considered on revised terms • Investee may be an SME or if it is a large company then the size is limited to a total asset base of R80 million
• Can be a start-up, expansion or expansionary acquisition
• It is available to new entrants – that is, those shareholders with a direct or indirect total net asset base of less than R15 million
• The business must include persons with disabilities in both management and operations; if this is not the case at application, then it must be achieved within 2 years of approval
• No single investment should exceed the investment size of R8 million


Agro-Processor Linkage Scheme

Agro-processors have the potential to significantly increase procurement from small farmers and have an important role to play to uplift participation of small black farmers in the supply chain. Unless agro-processors are encouraged to buy from small farmers, small farmers will remain marginalised. Such a situation will have ripple effects on the broader development of the agricultural industry in South Africa. With this in mind, the Agro-Processor Linkage Scheme was established. This scheme is a preferential interest rate scheme set up to facilitate rural development through the agro-processing sector, by providing definite and direct linkages between agro-processors and resource-poor farmers.

The Scheme will provide finance for the following:
• Expansion of existing agro-processing capacity, thereby creating additional demand for raw materials, with the understanding that a portion of the incremental raw materials will be procured from target beneficiaries specified by the IDC
• New agro-processing capacity
• Projects with the existing agro-processors that will result in better capacity utilisation
• Expansion of existing BEE contract models that agro-processors may have
• The establishment of new BEE contract farming models
• Facility limits: » Minimum loan amount of R1 million » Maximum of R20 million per project
• Loans will be priced at prime minus 3% for the full period of the loan, and the term of the debt will depend on the cash flows of the agro-processor, for a maximum of 10 years
• IDC will take up to 60% of the risk associated with the funds being lent, and the agro-processor will only stand in for 40% of the potential losses • Funding is subject to the availability of remaining funds under the scheme
• The scheme will not provide funding for refinancing of existing agro-processors


Agro-Processing Competitiveness Fund (APCF)

The main objective of the Agro-Processing Competitiveness Fund (APCF) is to facilitate increased competition, growth and development in the agro-processing sector; through the provision of finance to non-dominant players in the agro-processing and beverages sector. R250 million has been set aside for the fund.

There are three channels through which the disbursement of funding is provided:
• Through an investment channel where senior debt and quasi- equity loans are provided to sustainable commercial entities without a dominant market position.
• Through a business support channel that engages management consultants and industry experts to provide technical and professional services, advice, guidance and mentoring. The need for business support will be assessed on a case-by-case basis as part of the investment appraisal and decision-making process.
• Through research grants, provided to promote research and development and competitiveness of the agro-processing value chain. A grant size of between R200 000 and R1 million is allocated per research grant application.

The fund aims to achieve developmental outcomes such as rural development, job creation, exports and imports replacement as well as broad-based black economic empowerment (BBBEE).

Funding criteria: Investees supported must fulfil one of the following criteria:
• Sustainability – every investment must show either at application stage or over a budgeted period through the intervention of the Fund, that it is sustainable (from a financial, technical and environmental perspective)
• Sector focus – enterprises in the agro-processing and beverage sectors
• Beneficiary companies – companies that do not have a dominant market position at the time of application within the South African agro-processing and beverage sector
• Type of enterprises – start-ups and expansions (excluding businesses in financial distress)
• Activity focus – it will specifically support companies that want to apply growth strategies such as those mentioned above. Other applications of funding will also be considered such as increased capital expenditure


Clothing and Textiles Competitiveness Programme (CTCP)

The Clothing and Textiles Competitiveness Programme (CTCP) flows from the Department of Trade & Industry’s implementation of the Customised Sector Programmes (CSPs) for the Clothing, Textiles, Footwear, Leather & Leather Goods Industries, which has a number of programmes aimed at creating sustainable capabilities and employment in these industries.

The main objective of the CSP is to assist industry in upgrading processes, products and people – to reposition it so that it competes effectively against other low-cost-producing countries.

The CTCP is aimed at structurally changing the Clothing, Textiles, Footwear, Leather & Leather Goods manufacturing industries by providing funding assistance for these sectors to invest in competitiveness improvement interventions.

The CTCP consists of four schemes
The Capital and Technology Upgrading Programme:
• Part of the Enterprise Investment Programme (EIP) in support of the manufacturing sector and administered by the dti The Preferential Financing Scheme:
• Provided directly by the IDC and managed by the Textiles and Clothing Strategic Business Unit (SBU)

The Clothing and Textiles Competitiveness Improvement Programme (CTCIP):
• The CTCIP is a grant incentive programme initiated and designed to stimulate the competitiveness of the South African clothing, textiles, leather, leather goods and footwear manufacturing “sectors”
• The main objective of the CTCIP is to create a group of globally competitive companies in the sector, ensuring a sustainable environment that will retain and grow employment levels
• CTCIP offers two levels of support:
» Activities in R-sector clusters in all the major producing regions, and » Firm level intervention for larger companies or companies where there is no cost or operational benefit to operating in a collective structure
• Cluster-level intervention, cost-sharing grant:
» 75:25 cost-sharing grants: 75% from the CTCIP grant and the rest from the cluster
» Project costs up to a maximum of R25 000 000 over the five-year period of the programme implementation • Firm-level intervention, cost-sharing grant:
» 65:35 cost-sharing grants: 65% from the CTCIP grant and 35% from the firm
» Project costs up to a maximum of R2 500 000 over the five-year period of the programme implementation
• Both interventions commencing on 1 April 2009, for a period ending 2014

The Production Incentive (PI):
• The Production Incentive flows from the Department of Trade & Industry’s (the dti’s) implementation of the Customised Sector Programmes (CSPs) for the Clothing, Textiles, Footwear, Leather & Leather Goods Industries
• The CSPs consist of a number of programmes aimed at creating sustainable capabilities and employment in these industries
• The main objective of the CSP is to assist industry in upgrading processes, products and people to reposition it so it competes effectively against other low-cost-producing countries
• The PI is an incentive offered to: » Clothing manufacturers » Textiles manufacturers » Cut, Make and Trim (CMT) operators » Footwear manufacturers
• Leather goods manufacturers, and
• Leather processors (specifically for Leather Goods and Footwear industries)
• The Production Incentive specifically excludes any Leather and Leather Goods manufactured for the automotive sector
• The PI is an incentive offered to the sub-sectors listed above, resulting in an incentive benefit equal to 10% for the year ending March 2011 and 7.5 % for the year ending March 2012 of a company’s Manufacturing Value Addition (MVA)
• The PI consists of a combination of: » an Upgrade Grant Facility, which is meant to focus on competitiveness improvement, and » an Interest Subsidy for Working Capital Facility that is meant to support working capital requirements resulting from past and future upgrading interventions » Applicants can either use the full benefit for the Upgrade Grant Facility or for the Interest Subsidy Facility or a combination of both.


Standard IDC funding structures

IDC Funding can be structured utilising a wide array of instruments including:
• debt/equity
• quasi-equity
• guarantees
• trade finance
• bridging finance
• venture capital

The funding will be structured in the most appropriate manner to meet the business, and structuring options include:
• Funding term: short-, medium- and long-term loans are available
• Payment holidays: this can be negotiated where applicable, allowing for periods where no payments need to be made on either capital or interest
Application for funding should be in writing, including an executive summary and a business plan. Moreover, any application must meet the IDC’s minimum requirements.

These include:
• Security; the form and nature of which will relate to your specific circumstances
• Compliance with international environmental standards
• Shareholders/owners are expected to make some financial contribution: » The contribution of historically disadvantaged people under special circumstances may be lowered, in which case the IDC will be prepared to extend finance in excess of the owner’s contribution
• The project/business must exhibit economic merit in terms of profitability and sustainability
• The IDC does not refinance fixed assets, since our aim is to expand the industrial base Additional services IDC’s business support programme offers non-financial support to entrepreneurs. The support is available during pre- and post-approval stages, including assistance to distressed clients.